Economic theory suggests that an economy's openness to international trade reduces the ability of monetary policy to affect output. Using quarterly data from the 1960:1–1993:4 period for a set of eight countries (Australia, Canada, Germany, Italy, Japan, South Africa, the U.K., and the U.S.A.), this article's empirical results support this theoretical prediction: the more open the economy, the smaller the output effects of a given change in the money supply. This finding, robust across all the different specifications and estimation methods examined, has straightforward implications for stabilization policy. Moreover, it suggests that an economy's net benefit from joining a monetary union is increasing with the economy's openness to foreign trade. Copyright Kluwer Academic Publishers 2001
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Volume (Year): 12 (2001) Issue (Month): 1 (January) Pages: 61-73 Download reference. The following formats are available: HTML
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dornbusch, Rudiger & Giovannini, Alberto, 1990.
"Monetary policy in the open economy,"
Handbook of Monetary Economics,
in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 23, pages 1231-1303
Elsevier.
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